Updated 6/29/2020 at 4:07PM to reflect that the Supreme Court requested the appellate court review whether the government's petition to enforce the CID should be denied.

The question of whether the Consumer Financial Protection Bureau's (CFPB) structure is constitutional or not has been floating around the judicial system for a couple of years now. As of today, we finally have an answer. Today, the U.S. Supreme Court (SCOTUS) issued an opinion finding the CFPB's structure unconstitutional in the Seila v. CFPB.

The main issues raised regarding the constitutionality of the CFPB's structure revolve around the separation of powers clause. Specifically, the question of whether having a single director removable by the President only for cause is problematic considering the CFPB's unique independence as a federal agency. SCOTUS decided it was a problem indeed, but one that can be remedied through severability—meaning the rest of the rules surrounding the CFPB's function and structure can remain intact.

The opinion poignantly concludes:

We therefore hold that the structure of the CFPB violates the separation of powers. We go on to hold that the CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.

The decision discusses the differences between the Federal Trade Commission, where for-cause removal of commissioners was allowed by SCOTUS in a prior court decision, and the CFPB:

Unlike the New Deal-era FTC upheld there, the CFPB is led by a single Director who cannot be described as a “body of experts” and cannot be considered “non-partisan” in the same sense as a group of officials drawn from both sides of the aisle. Moreover, while the staggered terms of the FTC Commissioners prevented complete turnovers in agency leadership and guaranteed that there would always be some Commissioners who had accrued significant expertise, the CFPB’s single-Director structure and five-year term guarantee abrupt shifts in agency leadership and with it the loss of accumulated expertise.

Specifically regarding the lack of accountability in the single-director structure, the opinion states:

The CFPB’s single-Director structure contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to no one. The Director is neither elected by the people nor meaningfully controlled (through the threat of removal) by someone who is. The Director does not even depend on Congress for annual appropriations. See The Federalist No. 58, at 394 (J. Madison) (describing the “power over the purse” as the “most compleat and effectual weapon” in representing the interests of the people). Yet the Director may unilaterally, without meaningful supervision, issue final regulations, oversee adjudications, set enforcement priorities, initiate prosecutions, and determine what penalties to impose on private parties. With no colleagues to persuade, and no boss or electorate looking over her shoulder, the Director may dictate and enforce policy for a vital segment of the economy affecting millions of Americans.

The Seila case arose from a consumer law firm that received a Civil Investigation Demand (CID) from the CFPB. One of the arguments raised is that Seila's injury is not traceable to the constitutional defect. The SCOTUS disagreed, and remanded the case with instruction to review whether the Government's petition to enforce the CID should be denied.

insideARM Perspective


This is a huge decision. While the fix may seem simple—just change the removal structure—that actual issue is much deeper. Since the CFPB's CID in Seila is remanded to review whether the CID should be set aside, what happens to all other CIDs that were issued prior to this decision? What about the CFPB's prior enforcement actions and rulemaking efforts? Seems like the next few months will help us answer the big "what if" question that's been on our minds ever since the constitutionality issue was first raised.


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Tags: CFPB